Understanding Why CryptoPunks Lost to BAYC from "V1 Punks Controversy"

Source: decrypt

Author: Andrew Hayward

Compiled by: Moni, Odaily Planet Daily

For many in the NFT community, CryptoPunks launched by Larva Labs is seen as the gold standard for avatar-like NFTs on the Ethereum chain. Many celebrities on Twitter prefer to use CryptoPunks as their identity markers, and driven by the market, the sales of CryptoPunks have soared.

However, due to some recent events, the shine of CryptoPunks seems to be diminishing to some extent, and Larva Labs has begun to seriously review some of its "own actions." In fact, as the creative team behind CryptoPunks, Larva Labs had a small flaw in the original smart contract when the series of NFTs was first released in 2017, which led Larva Labs to scrap the first version of the contract and reissue the NFTs. Ultimately, the V2 contract successfully propelled CryptoPunks NFTs into the crypto asset market and achieved tremendous success, with the trading volume of the series exceeding $2 billion to date.

However, some of the "V1 CryptoPunks" NFTs were "wrapped" through community smart contracts and reissued as ERC-721 Ethereum tokens, although the background colors of each token differ from the standard Punks. In recent years, as market enthusiasm and prices have risen, these vintage NFTs are now being sold as historical artifacts.

The website for V1 Punks states:

"The resurgence of the early version of the Punks smart contract is driven by a rapidly evolving community, which includes early Punks airdrop participants, early users of the NFT industry, and some very talented developers."

But recently, Larva Labs has begun to take action and hinted that V1 Punks NFTs are not "real" CryptoPunks NFTs. On January 25, 2022, Larva Labs officially tweeted:

"'V1 Punks' are not official Cryptopunks, although we have 1,000 of them… but we don't want them, so community users can judge for themselves what's good or bad. We believe any profits should be used to buy real Cryptopunks!"

What has dissatisfied the community is that the Larva Labs creative team has sold dozens of V1 Punks themselves, profiting from it while claiming these NFTs should not be considered legitimate CryptoPunks. To quell the anger of the NFT community, Larva Labs co-founder Matt Hall apologized for selling V1 Punks in an official statement on Wednesday (February 2), calling the act "foolish" and "wrong."

When discussing the sale of V1 CryptoPunks, Matt Hall said:

"We shouldn't profit from this abandoned contract anymore. We thought that by expressing our thoughts and selling some tokens, people would see our disdain for V1 CryptoPunks, and maybe others would follow suit. However, the outcome shows this was a very bad decision, and we deeply regret it and apologize to the community."

Matt Hall stated that Larva Labs profited 210 ETH (approximately $622,000) from the sale of V1 Punks NFTs and used part of the funds to purchase standard (V2) CryptoPunks. The team plans to use the remaining funds to buy back some CryptoPunks NFTs and donate 210 ETH to the Rainforest Foundation.

Matt Hall added:

"Before we did this foolish thing, we had actually been very correct in our management of the CryptoPunks project. Now we have learned a painful lesson and hope to make amends through this donation."

Is Larva Labs' Counterattack Effective?

In the statement released by Larva Labs, one detail caught the community's attention, as Matt Hall hinted that Larva Labs could take some legal action regarding the wrapping of V1 CryptoPunks.

"We initially did not pursue the V1 project for infringing on the artwork and CryptoPunks copyright because we did not want to give V1 Punks any extra attention, but now many CryptoPunks owners are calling for us to take action, and we agree with their views. Do not confuse the legitimacy of the 'V1 Punks' project; it has no right to use the CryptoPunks name, and we will take appropriate measures in the coming days."

It is still unclear what this action might look like. For example, Larva Labs may request NFT markets OpenSea and LooksRare to remove the related NFTs under the Digital Millennium Copyright Act (DMCA) and issue warnings to those allowing users to trade V1 Punks NFTs, or to websites related to the V1 Punks market, as well as to the smart contracts used to wrap V1 Punks.

However, so far, Larva Labs has not provided a clear response or opinion.

Unexpectedly, this move by Matt Hall (especially after Larva Labs itself had sold wrapped V1 CryptoPunks) has faced strong criticism from holders. Some believe this action is anti-community, anti-blockchain, and anti-decentralization, and as a result, other controversies surrounding CryptoPunks have begun to surface.

Collector DCinvestor wrote on Twitter: "I have never seen any team mess up a project like Larva Labs has with CryptoPunks. The IP value of CryptoPunks is high, but they have ruined this project. At this point, I think this move is to transfer personal intellectual property to 'official' CryptoPunks NFT holders, or they should learn from BAYC and launch some derivative projects like the Mutant Apes, otherwise Larva Labs will only make this project more chaotic, potentially leading to the NFT losing all its value."

Another well-known NFT collector, Anonymoux, also shared his views on Twitter, stating that after seeing Larva Labs' statement, he decided to sell his Punks and focus on other projects because he felt "anxiety" about the project:

"It's time to sell Punk #2311. If a company's executives frequently create chaos in the business, I certainly wouldn't hold their stock, so the same goes for CryptoPunks. I don't plan to continue following this project, but I am very grateful for the important role Punks played in my NFT journey."

Do CryptoPunks V1 Still Have Value?

Frankly speaking, Larva Labs' next steps regarding the wrapping of V1 CryptoPunks are currently unclear, but V1 NFTs can still be purchased from the market—some collectors have begun to bet on these NFTs, believing their potential future value will further expand.

On Wednesday (February 2), the NFT investment fund Meta4 Capital announced they purchased two V1 CryptoPunks: one for 1,000 ETH (approximately $2.8 million) and the other for 200 ETH (approximately $556,000). Meta4 Capital stated on Twitter that the prices reflect that the "true" value of V1 CryptoPunks may only be about a quarter of the value of V2 CryptoPunks.

Meta4 Capital managing partner Brandon Buchanan explained that he respects Larva Labs and its co-founders Matt Hall and John Watkinson for their need to protect IP and oversee the CryptoPunks ecosystem, but as an emerging asset class, most NFT rules and standards have not been thoughtfully established. Although this field innovates rapidly, there are still many issues.

Nevertheless, Brandon Buchanan does not believe NFT creators should focus on being "palatable to the masses" and then let the market decide which NFT series can succeed. Moreover, he suggested that Larva Labs should focus on creating value for NFT holders and listening to the community's voice—"Once Larva Labs and its NFT holders' values are fully aligned, I believe CryptoPunks can still release more value."

Meta4 Capital stated on Twitter that some flawed versions of NFT products still have market advantages in the secondary market. Essentially, V1 Punks are based on the code deployed by Larva Labs on an immutable blockchain platform—therefore, these Punks are not counterfeits, even if Larva Labs disapproves of their revival. Brandon Buchanan offered the following advice:

"This is not a true copyright issue, as Larva Labs attempts to regulate the secondary market for V1 Punks and has begun to look for assets to distribute and claim. Many misprinted collectibles (such as stamps and comic books) have a history of being recalled, but these misprinted collectibles can still be sold in the secondary market, sometimes even at higher values. We should view V1 Punks in the same way. In fact, I think this is an exciting experience for Larva Labs; history/lineage should be embraced rather than rejected."

Matt Sanders, the lead singer of the heavy metal band Avenged Sevenfold and creator of the Deathbats Club NFT series, shares a similar view. He believes both V1 and V2 CryptoPunks "express value in their own way." Like Meta4 Capital, he also owns both V1 and V2 CryptoPunks.

Matt Sanders has a unique perspective on V1 Punks, viewing them as song demos that help provide a historical record of the art and build a narrative around it. Some fans or collectors may even find the V1 or "demo" version NFTs more meaningful—but as a creator himself, he suggests respecting Larva Labs' view on what constitutes "real CryptoPunks."

Matt Sanders concluded:

"Most collectors will prefer the V2 'official version,' but some may prefer to collect V1 Punks. The two versions are different, which is important; V1 Punks also reflect the creator's intent, so it is only natural to assign it some status."

Are CryptoPunks Doomed?

The general response from the NFT community to the official statement released by Larva Labs has been negative, and this negative sentiment continues to fester. The community believes that as the NFT space evolves, Larva Labs should provide utility to holders, yet they are currently unclear about what Larva Labs will bring to them in the future.

In recent months, some CryptoPunks holders have begun to complain about the project, expressing that they are unsure how to monetize the images they own. The community's complaints about Larva Labs' detached approach are growing stronger—this stands in stark contrast to other popular avatar-like profile picture (PFP) NFT projects.

In fact, another giant in the NFT space, the Bored Ape Yacht Club (BAYC), is also developing rapidly, and the differences between the two are quite significant.

Bored Ape holders can use the images they own for any purpose—including merchandise, the metaverse, and brand promotion—additionally, Yuga Labs offers holders extra free NFTs, exclusive merchandise, and event perks, making "Bored Apes" feel like a privileged private club while also serving as a public social media persona. The "Bored Apes" NFT series also directly references pop culture, from Hawaiian shirts from Magnum PI to togas and other historical styles, mixed with elements of punk rock and 90s hip-hop.

Recently, a large number of celebrities have joined the ranks of "Bored Apes," quickly elevating the mainstream image of this NFT series—the results are evident, as the prices of "Bored Apes" NFTs have also soared. In December 2021, the floor price of Bored Apes (the cheapest NFT in the series) first surpassed that of CryptoPunks, and the gap in floor prices between the two projects continues to widen.

At the time of writing, the floor price of Bored Apes has exceeded 100 ETH ($294,000), while the floor price of CryptoPunks is only 69 ETH ($203,000). According to data from CryptoSlam, from December 2020 to January 2021, despite a broader rise in the NFT market, the trading volume of CryptoPunks fell by 28%.

Also in December 2021, well-known NFT collector and co-founder of the Nouns project Punk 4156 sold his CryptoPunks NFT for $10.26 million. Punk 4156 stated that the reason for this move was simple: he was dissatisfied with Larva Labs' handling of the intellectual property situation, so he decided to exit the project.

From the current situation, CryptoPunks seems to be on a downward trend, while BAYC has taken a completely different development path—creating a space where anyone can find their own "ape collection," and it is this mode of expression that makes BAYC stand out. Undoubtedly, water can carry a boat and capsize it; no NFT project can escape the community, and if it goes against the community's will, it often struggles to achieve a good outcome. A timely apology from CryptoPunks may temporarily alleviate the community's dissatisfaction, but to reverse the trend, they must truly create value for NFT holders and listen to the community's voice.